More than 64 million Americans lack a credit history, but financial institutions are trying to determine such consumers' creditworthiness using big-data brokers. "Big data" involves information from Internet searches, social media, and mobile apps; and it promises predictive algorithms that could make better products available to the underbanked. This new method, however, is not a reliable way to provide affordable access to credit, the National Consumer Law Center (NCLC) says.
The center's new report, “Big Data: A Big Disappointment for Scoring Consumer Creditworthiness,” examines the information provided by data brokers and reviews the trustworthiness of products that use big data. For the research, 15 NCLC employees tried to retrieve their information from four data brokers: eBureau, ID Analytics, Intelius, and Spokeo. Each volunteer found reports full of inaccuracies and incomplete information, including wrong email addresses and poorly estimated income. Seven out of 15 consumer reports generated by eBureau contained errors in estimated income, sometimes doubling or halving a participant's salary. Eleven of the 15 reports incorrectly stated the consumer’s education level. Reports purchased from Intelius and Spokeo contained the most inaccuracies, including wrong addresses, incorrect family-member information, and addition or omission of social-media accounts. Reports from eBureau and ID Analytics contained very little data.
The NCLC also evaluated seven loan products based on big-data underwriting, six of them -- including RISE Credit -- marketed as payday loan alternatives. Some of the features were found to be “less bad” than traditional payday loans but still failed to meet requirements to be considered truly preferable alternatives. The NCLC also found that many big-data brokers could be considered consumer-reporting agencies and, thus, subjected to the Fair Credit Reporting Act. This law places significant duties on reporting agencies that deal with accuracy, disclosure, and the right to dispute items on reports. Big-data brokers currently are unlikely to meet many of the act's requirements.
For correct use of big data, the NCLC recommends that the Federal Trade Commission continue to study big-data brokers and credit scores for potential discriminatory impact. Also, the Consumer Financial Protection Bureau should examine big data brokers for legal compliance with the Fair Credit Reporting Act and Equal Credit Opportunity Act. The bureau also may create a mandatory registry for consumer reporting agencies so that consumers are aware of who has their data.